World Consistent Equilibrium Exchange Rates
AbstractThis paper proposes a systematic analysis of the problem of world consistency when deriving equilibrium exchange rates. World inconsistency can arise for two reasons. First, real effective misalignments of currencies out of the considered sample are implicitly assumed to be the mirror image of those of the currencies under review. Second, only NÃ -Ã 1 independent bilateral equilibrium exchange rates can be derived from a set of N effective rates. Here we measure the extent of these two problems by estimating equilibrium exchange rates for 15 countries of the G20 in effective as well as bilateral terms and by varying the assumptions concerning the rest of the world (RoW) and the numeraire currency. Our results show that the way the rest of the world is tackled has a major impact on the calculation of effective misalignments and especially bilateral misalignments.
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Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 2006-20.
Date of creation: Dec 2006
Date of revision:
Exchange rate; Models; panel;
Other versions of this item:
- Bénassy-Quéré, Agnès & Lahrèche-Révil, Amina & Mignon, Valérie, 2011. "World-consistent equilibrium exchange rates," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 12-32, June.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-16 (All new papers)
- NEP-CBA-2006-12-16 (Central Banking)
- NEP-IFN-2006-12-16 (International Finance)
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